Successful Transitions from Public to Private-Sector Led Growth: Lessons for Benin

IMF Working Papers, December 3, 2021

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Many Sub-Saharan African (SSA) countries, like Benin, have scaled up public investment during the last decade, contributing to infrastructure improvement and a build-up of debt vulnerabilities.
Planned fiscal consolidation will restrain public spending, and, in particular, public investment.
Maintaining or raising the region’s economic growth will require an offset by the private sector.
The analysis draws lessons from countries that have successfully transitioned from public investment to private investment-led growth using a global sample starting in the mid-1980s.
The analytical framework proposed by Hausman, Rodrik and Velasco (2005) is used to identify and classify policies that have been crucial in fostering a rebound of private investment following a contraction of public investment.
The paper analyzes how the identified policies could help Benin achieve a smooth transition from public to private sector-led growth.

Public investment scaling-up over the last decade improved infrastructure but contributed to debt vulnerabilities.
Fiscal consolidation plans imply restraint in public spending and public investment going forward.
A successful rebound of private investment is necessary to sustain or raise growth as public investment declines.
Lessons are drawn from a global sample beginning in the mid-1980s of countries that successfully transitioned from public- to private-led investment growth.
Identified lessons focus on policies that enabled private investment to rebound when public investment contracted.

Empirical basis: global sample of countries starting in the mid-1980s.
Conceptual framework: Hausman, Rodrik and Velasco (2005) analytical framework used to identify and classify the relevant policies for transition from public- to private-led growth.
Application: the paper examines how the classified policies could be applied to Benin to support a smooth transition.

Policy measures that can foster private investment rebound are identified and classified according to the Hausman, Rodrik and Velasco (2005) framework.
The paper discusses how these identified policies could assist Benin in achieving a smooth shift to private sector-led growth in the context of fiscal consolidation.